Springfield, Ill.-based Memorial Health System is set to take on Decatur (Ill.) Memorial Hospital, the organizations announced Thursday.
The 300-bed Decatur would be the second-largest hospital in Memorial's network, which includes Memorial Medical Center in Springfield, Passavant Area Hospital in Jacksonville, Abraham Lincoln Memorial Hospital in Lincoln and Taylorville Memorial Hospital in Taylorville, as well as Memorial Physician Services, Memorial Behavioral Health and Memorial Home Services.
The boards of both not-for-profit organizations reached an affiliation agreement in late April and the merger is expected to be completed on Oct. 1, pending customary regulatory approvals. Decatur will maintain local governance and leadership who will continue to manage day-to-day operations. The deal, in which no money will change hands, will also place Decatur directors on Memorial's board.
"Remaining on the leading edge of health and patient care is critical to delivering on our mission," Timothy Stone Jr., president and CEO of Decatur Memorial Hospital, said in prepared remarks. "Joining a neighboring, like-minded, leading healthcare organization will help us provide lower-cost, higher-quality healthcare using innovative practices and technology."
Decatur has more than 2,300 employees and 300 medical staff and has been recognized for its cardiovascular services. It is also affiliated with the University of Illinois and Southern Illinois University. While the hospital has leading market share in the Decatur area ahead of HSHS St. Mary's Hospital, it has recently posted significant operating losses, according to Modern Healthcare Metrics.
Decatur reported a $36.2 million operating loss on revenue of $289.8 million in 2017, the most recent audited annual data available show. That compared to an $18.2 million operating loss on $266.1 million of revenue in 2016.
According to its unaudited Medicare cost reports pulled by Modern Healthcare Metrics, Decatur also reported an operating loss in 2018. Its acute inpatient discharges have fallen by nearly 20% from 2014 to 2018 while its days cash on hand has dropped drastically, according to Modern Healthcare Metrics.
Health systems have looked to turn around struggling independent hospitals as they eye a return on investment, although it is a risky endeavor particularly in Illinois with its backlog of state Medicaid payments. Executives maintain that scale will lower operating costs and improve care while economists claim the opposite.
Also, fewer roll-up opportunities remain. Nearly three-quarters of all hospitals were part of multihospital systems in 2017, up from 70.4% in 2012, Metrics data show.
Stand-alone hospitals' financial situations are increasingly tenuous. More than half the nation's stand-alone hospitals (53.2%) have lost money on an operating basis for each of the past five years, which is more than twice the share of system-owned hospitals (25.9%), according to an analysis of Modern Healthcare Metrics data.
Memorial Health System, which has nearly 7,100 staff members and 900 partnering physicians, reported $34.4 million of operating income on revenue of $1.02 billion in 2018, up from $27.4 million of operating income on $995.8 million of revenue in 2017, per Modern Healthcare's financial database. It earned $60 million in capitation revenues in 2018 via risk-based contracts for some of its patients.
